By Stephen J Butler
The writer, cofounder of a third-party pension management company and public speaker, discusses how 401(k) plans paintings, how one can examine the standard of a plan, and the way to revamp it to be larger. Of most probably curiosity to corporation decision-makers and energetic 401(k) plan members.
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Additional info for 401(k) today: designing, maintaining & maximizing your company's plan
Roll over the funds into an IRA or into the new employer's 401(k) plan. In options two and three, the tax obligation is further deferred, and earnings continue to build with no annual tax obligation. With the portability of 401(k) plans and the flexibility to continue deferring taxes, the participant can enjoy tax-advantaged savings for long periods of time and accumulate a large pool of capital. Page 11 401(k) Plans Have a Relatively Simple Structure The structure of a 401(k) plan has the following building blocks: 1.
We'll discuss some of these in Chapter 13. Assessing Your Plan The rules governing how much can be contributed are important for participants to know about, because, in many cases, they may have been told that the maximum percentage is lower than 25%. Often, for convenience purposes, the 15% maximum will be applied to individuals even when the plan as a whole is way below its average 15% maximum. This is unnecessary and penalizes many employees who would have wanted to contribute more. If you are limited to 15%, it might be wise to ask why.
At least a 401(k) matching contribution is guaranteed to be recognized and appreciated, because it is only received by employees contributing their own money to the plan. A matching contribution is probably the most cost-effective form of company contribution to a qualified retirement plan. The only retirement plan more cost-effective is a 401(k) plan with no company matching contribution. Page 25 The Right Type of Matching Contribution If a company wants to offer a matching contribution, probably the best formula involves a relatively small contribution that is capped at an annual dollar amount and is immediately 100% vested.